By Dominic Brown
Several weeks into the Middle East conflict, uncertainty remains elevated around both its duration and the conditions for de-escalation. While diplomatic efforts have intensified, there is limited clarity on the timing or nature of any resolution. Against this backdrop, it is increasingly important to assess how prolonged disruption could affect South Korea’s economy and property markets.
The effective closure of the Strait of Hormuz remains the central channel of transmission. Prior to the conflict, around 20 million barrels per day of crude oil and refined products — roughly 20-25 percent of global seaborne oil trade — passed through the strait. For the Asia-Pacific region, the exposure is markedly higher, with more than 80 percent of imported oil reliant on this route. Korea, in particular, has a high dependence on Middle Eastern crude oil, accounting for around 70 percent of its total imports. Furthermore, approximately 90 percent of its crude oil imports pass through the Strait of Hormuz.
The immediate impact has been most visible in fuel pricing. Although global oil consumption has fallen by only around 5 percent so far — reflecting coordinated releases from strategic reserves — the effects across Asia have been uneven. Large economies with extensive stockpiles have been able to buffer supply shocks, while several emerging markets have experienced fuel rationing and consumption restrictions.
Korea sits between these extremes. The country’s sizable strategic reserves and sophisticated refining sector have helped to avoid physical shortages. However, this has not insulated the economy from sharp price increases. Gasoline prices have increased by 17 percent compared to 2025, adding pressure to already elevated living costs.
How are markets reacting?
Equity markets have experienced sharp swings, though in recent weeks volatility has settled and markets have recovered most, if not all, of their early losses. Notwithstanding, bond markets have also reacted, with yields rising as inflation expectations adjust. Despite this volatility, global business confidence has so far remained relatively resilient.
Korea has broadly followed this global trend, but with heightened sensitivity due to its high dependence on energy imports and external trade. Business confidence initially declined amid rising oil prices and currency weakness but has shown signs of stabilization alongside easing geopolitical tensions.
Consumer sentiment, however, tells a different story. Higher fuel prices, rising transport costs and broader inflation concerns have weighed more heavily on households. Given Korea’s already subdued domestic consumption backdrop — linked to high household debt and a cooling housing market — this deterioration in sentiment represents a downside risk.
Economic impact and outlook
The economic effects of the conflict are now emerging more clearly, with inflation being the most immediate transmission channel. Higher energy prices feed directly into headline inflation, but second and third-round effects pose a greater risk over time. Even in a scenario where the conflict was to end abruptly, the restoration of oil production and maritime trade to pre-conflict levels will take time.
As a result, inflationary pressures are likely to persist longer than initially anticipated. For central banks, this complicates the policy outlook. While policymakers are likely to look through the initial supply-driven inflation impulse, the scope for near-term rate cuts has narrowed significantly. The Bank of Korea is likely to remain cautious, with limited room for near-term rate cuts despite growth concerns.
A less accommodative monetary setting is likely to impact economic growth. According to Moody’s Analytics, baseline regional growth has been trimmed from 3.98 percent to 3.83 percent for 2026. Similarly, the growth outlook for Korea has changed, with forecast growth of 1.71 percent in 2026 and 1.96 percent in 2027, compared to previous forecasts of 1.9 percent and 1.99 percent respectively.
Implications for commercial real estate
The implications for commercial real estate will be transmitted primarily through the macroeconomic environment rather than through immediate sector-specific shocks.
Logistics and supply chains are facing the most immediate pressures. Rising fuel prices, selective diesel shortages, and higher shipping insurance premiums are increasing the cost of moving goods both within Korea and across international trade routes. These cost pressures will result in higher goods prices, while supply chain bottlenecks could contribute to periodic supply disruptions. Construction activity is also exposed, as higher transport and material costs could exacerbate the decline in new supply expected at the start of the year.
Retail is also exposed to supply chain dynamics, with further impacts likely via higher consumer prices. As households become more cautious, spending typically shifts toward nondiscretionary items, with discretionary expenditure curtailed first.
Office markets face more gradual risks. For Korea specifically, working from home did not become widely established and is less likely to be adopted in the current situation. Over the medium term, the key risk is macroeconomics: Any sustained slowdown in employment growth would dampen demand for office space. However, vacancy in Seoul remains tight, which has supported robust rental growth and rising office values.
Capital markets entered 2026 on a relatively strong footing. However, prolonged geopolitical uncertainty typically leads to more selective capital deployment and slower transaction volumes as investors reassess assumptions. While we do not see immediate upward pressure on yields, deal velocity is likely to slow if uncertainty persists. Over the longer term, investors may reassess strategies, placing greater emphasis on resilient sectors that offer defensive income and structural growth.
Dominic Brown is the head of International Research at Cushman & Wakefield. Views in this column are his own. — Ed.
silverstar@heraldcorp.com
President Lee Jae Myung said Monday that South Korea would work closely with India to help ensure safe and free navigation through the Strait of Hormuz and diversify energy supply chains to reduce dependence on the Middle East.
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